There are times when you find yourself strapped for cash and facing added expenses, but you have few resources. A personal loan can help you get out of that bind quickly, but failing to do your due diligence can leave you in an even worse position. By taking the time to research your options and develop a plan for repaying any money you borrow, you won’t have to stress about repaying the loan.
Shop for the Best Interest Rates
Whether it’s student loan interest or the rate on a personal loan, interest rates vary greatly from lender to lender. While a fraction of a percent may not seem like much, it adds up to considerable savings when applied to a loan. In addition to looking at the rates, also look at the length of each loan. While it may not seem like it, a higher interest rate paid back over a shorter period of time may cost you less than a lower rate paid back over a longer repayment schedule. Of course, it’s important to remember that a shorter repayment period means higher monthly payments.
Consider Your Credit
There are a couple of reasons your credit score might dissuade you from taking out that loan. First, if your score is already low, you may be facing higher interest rates. When applying for online installment loans, be sure to check the rates before submitting your application. This will help you determine if you’re paying a higher than average rate. Additionally, taking out that loan probably won’t help your credit score, but, if you fail to make your payments on time, it may bring your score down even lower. Be sure making your payments on time won’t be a problem.
Can Your Budget Handle the Added Expense
Another thing to consider in deciding whether or not to take out a loan is how the payments will fit into your budget. This means creating a new alternate budget that accounts for your monthly payments, so you can see how the loan will affect the rest of your household spending. Typically, people only consider loans when they lack a surplus of unbudgeted cash, so adding a loan payment may require you to trim other expenses. Figure out how you will repay the loan ahead of time, so the loan won’t make matters worse.
Don’t Let Hidden Fees Sabotage Your Finances
In addition to the interest, there may be additional fees connected to your loan. If you don’t learn about these fees ahead of time, you may end up paying more than you anticipated. For instance, the lender may charge a loan origination fee of up to 1% of the value of the loan. While this is more common with real estate loans, lenders have started applying this processing fee to other types of loans. You may also be subject to a failed payment fee for payments that fail due to insufficient funds, or a prepayment penalty for paying the loan off early. Traditional late payment fees also apply to most loans.
While a loan can help you get out of a bind, you should only consider using it after you have researched the terms. When you fail to work out how you’ll repay the loan, you make things worse for yourself and your family. A bad loan can end up hurting your relationships as much as it hurts your finances. However, a properly researched loan that can be added to your budget without much upheaval can help you solve a financial emergency and get you back up on your feet.